G.R. No. 156956 October 9, 2006 "Wherefore, premises considered and after due hearing, Commissioner Eduardo T.
"Wherefore, premises considered and after due hearing, Commissioner Eduardo T. Malinis is hereby
REPUBLIC OF THE PHILIPPINES, by EDUARDO T. MALINIS, in His Capacity as Insurance
Commissioner, petitioner,
vs.
DEL MONTE MOTORS, INC., respondent.
DECISION
PANGANIBAN, CJ.:
The securities required by the Insurance Code to be deposited with the Insurance Commissioner are intended
to answer for the claims of all policy holders in the event that the depositing insurance company becomes
insolvent or otherwise unable to satisfy their claims. The security deposit must be ratably distributed among
all the insured who are entitled to their respective shares; it cannot be garnished or levied upon by a single
claimant, to the detriment of the others.
The Case
Before us is a Petition for Review1 under Rule 45 of the Rules of Court, seeking to reverse the January 16, 2003
Order2 of the Regional Court (RTC) of Quezon City (Branch 221) in Civil Case No. Q-97-30412. The RTC found
Insurance Commissioner Eduardo T. Malinis guilty of indirect contempt for refusing to comply with the
December 18, 2002 Resolution3 of the lower court. The January 16, 2003 Order states in full:
"On January 8, 2003, [respondent] filed a Motion to Cite Commissioner Eduardo T. Malinis of the
Office of the Insurance Commission in Contempt of Court because of his failure and refusal to obey
the lawful order of this court embodied in a Resolution dated December 18, 2002 directing him to
allow the withdrawal of the security deposit of Capital Insurance and Surety Co. (CISCO) in the
amount of P11,835,375.50 to be paid to Sheriff Manuel Paguyo in the satisfaction of the Notice of
Garnishment pursuant to a Decision of this Court which has become final and executory.
"During the hearing of the Motion set last January 10, 2003, Commissioner Malinis or his counsel or
his duly authorized representative failed to appear despite notice in utter disregard of the order of
this Court. However, Commissioner Malinis filed on January 15, 2003 a written Comment reiterating
the same grounds already passed upon and rejected by this Court. This Court finds no lawful
justification or excuse for Commissioner Malinis' refusal to implement the lawful orders of this Court.
1
declared guilty of Indirect Contempt of Court pursuant to Section 3 [of] Rule 71 of the 1997 Rules
of Civil Procedure for willfully disobeying and refusing to implement and obey a lawful order of this
Court."4
The Facts
On January 15, 2002, the RTC rendered a Decision in Civil Case No. Q-97-30412, finding the defendants (Vilfran
Liner, Inc., Hilaria Villegas and Maura Villegas) jointly and severally liable to pay Del Monte Motors,
Inc., P11,835,375.50 representing the balance of Vilfran Liner's service contracts with respondent. The trial court
further ordered the execution of the Decision against the counterbond posted by Vilfran Liner on June 10,
1997, and issued by Capital Insurance and Surety Co., Inc. (CISCO).
On April 18, 2002, CISCO opposed the Motion for Execution filed by respondent, claiming that the latter had
no record or document regarding the alleged issuance of the counterbond; thus, the bond was not valid and
enforceable.
On June 13, 2002, the RTC granted the Motion for Execution and issued the corresponding Writ. Armed with
this Writ, Sheriff Manuel S. Paguyo proceeded to levy on the properties of CISCO. He also issued a Notice of
Garnishment on several depository banks of the insurance company. Moreover, he served a similar notice on
the Insurance Commission, so as to enforce the Writ on the security deposit filed by CISCO with the
Commission in accordance with Section 203 of the Insurance Code.
On December 18, 2002, after a hearing on all the pending Motions, the RTC ruled that the Notice of
Garnishment served by Sheriff Paguyo on the insurance commission was valid. The trial court added that the
letter and spirit of the law made the security deposit answerable for contractual obligations incurred by CISCO
under the insurance contracts the latter had entered into. The RTC resolved thus:
"Furthermore, the Commissioner of the Office of the Insurance Commission is hereby ordered to
comply with its obligations under the Insurance Code by upholding the integrity and efficacy of
bonds validly issued by duly accredited Bonding and Insurance Companies; and to safeguard the
public interest by insuring the faithful performance to enforce contractual obligations under existing
bonds. Accordingly said office is ordered to withdraw from the security deposit of Capital Insurance
& Surety Company, Inc. the amount of P11,835.50 to be paid to Sheriff Manuel S. Paguyo in
satisfaction of the Notice of Garnishment served on August 16, 2002."5
On January 8, 2003, respondent moved to cite Insurance Commissioner Eduardo T. Malinis in contempt of
court for his refusal to obey the December 18, 2002 Resolution of the trial court.
Ruling of the Trial Court
The RTC held Insurance Commissioner Malinis in contempt for his refusal to implement its Order. It explained
that the commissioner had no legal justification for his refusal to allow the withdrawal of CISCO's security
deposit.
Hence, this Petition.6
Issues
Petitioner raises this sole issue for the Court's consideration:
"Whether or not the security deposit held by the Insurance Commissioner pursuant to Section 203
of the Insurance Code may be levied or garnished in favor of only one insured."7
The Court's Ruling
The Petition is meritorious.
Preliminary Issue:
Propriety of Review
Before discussing the principal issue, the Court will first dispose of the question of mootness.
Prior to the filing of the instant Petition, Insurance Commissioner Malinis sent the treasurer of the Philippines
a letter dated March 26, 2003, stating that the former had no objection to the release of the security deposit
to Del Monte Motors. Portions of the fund were consequently released to respondent in July, October, and
December 2003. Thus, the issue arises: whether these circumstances render the case moot.
Petitioner, however, contends that the partial releases should not be construed as an abandonment of its stand
that security deposits under Section 203 of the Insurance Code are exempt from levy and garnishment. The
Republic claims that the releases were made pursuant to the commissioner's power of control over the fund,
not to the lower court's Order of garnishment. Petitioner further invokes the jurisdiction of this Court to put to
rest the principal issue of whether security deposits made with the Insurance Commission may be levied and
garnished.
The issue is not totally moot. To stress, only a portion of respondent's claim was satisfied, and the Insurance
Commission has required CISCO to replenish the latter's security deposit. Respondent, therefore, may one day
decide to further garnish the security deposit, once replenished. Moreover, after the questioned Order of the
lower court was issued, similar claims on the security deposits of various insurance companies have been made
before the Insurance Commission. To set aside the resolution of the issue will only postpone a task that is
certain to crop up in the future.
Besides, the business of insurance is imbued with public interest. It is subject to regulation by the State, with
respect not only to the relations between the insurer and the insured, but also to the internal affairs of
insurance companies.8 As this case is undeniably endowed with public interest and involves a matter of public
policy, this Court shall not shirk from its duty to educate the bench and the bar by formulating guiding and
controlling principles, precepts, doctrines and rules.9
2
Principal Issue:
Exemption of Security Deposit from Levy or Garnishment
Section 203 of the Insurance Code provides as follows:
"Sec. 203. Every domestic insurance company shall, to the extent of an amount equal in value to
twenty-five per centum of the minimum paid-up capital required under section one hundred eighty-
eight, invest its funds only in securities, satisfactory to the Commissioner, consisting of bonds or
other evidences of debt of the Government of the Philippines or its political subdivisions or
instrumentalities, or of government-owned or controlled corporations and entities, including the
Central Bank of the Philippines: Provided, That such investments shall at all times be maintained free
from any lien or encumbrance; and Provided, further, That such securities shall be deposited with
and held by the Commissioner for the faithful performance by the depositing insurer of all its
obligations under its insurance contracts. The provisions of section one hundred ninety-two shall,
so far as practicable, apply to the securities deposited under this section.
"Except as otherwise provided in this Code, no judgment creditor or other claimant shall have
the right to levy upon any of the securities of the insurer held on deposit pursuant to the
requirement of the Commissioner." (Emphasis supplied)
Respondent notes that Section 203 does not provide for an absolute prohibition on the levy and garnishment
of the security deposit. It contends that the law requires the deposit, precisely to ensure faithful performance
of all the obligations of the depositing insurer under the latter's various insurance contracts. Hence, respondent
claims that the security deposit should be answerable for the counterbond issued by CISCO.
The Court is not convinced. As worded, the law expressly and clearly states that the security deposit shall be
(1) answerable for all the obligations of the depositing insurer under its insurance contracts; (2) at all times free
from any liens or encumbrance; and (3) exempt from levy by any claimant.
To be sure, CISCO, though presently under conservatorship, has valid outstanding policies. Its policy holders
have a right under the law to be equally protected by its security deposit. To allow the garnishment of that
deposit would impair the fund by decreasing it to less than the percentage of paid-up capital that the law
requires to be maintained. Further, this move would create, in favor of respondent, a preference of credit over
the other policy holders and beneficiaries.
Our Insurance Code is patterned after that of California.10 Thus, the ruling of the state's Supreme Court on a
similar concept as that of the security deposit is instructive. Engwicht v. Pacific States Life Assurance Co.11 held
that the money required to be deposited by a mutual assessment insurance company with the state treasurer
was "a trust fund to be ratably distributed amongst all the claimants entitled to share in it. Such a distribution
cannot be had except in an action in the nature of a creditors' bill, upon the hearing of which, and with all the
parties interested in the fund before it, the court may make equitable distribution of the fund, and appoint a
receiver to carry that distribution into effect."12
Basic is the statutory construction rule that provisions of a statute should be construed in accordance with the
purpose for which it was enacted.13 That is, the securities are held as a contingency fund to answer for the
claims against the insurance company by all its policy holders and their beneficiaries. This step is taken in the
event that the company becomes insolvent or otherwise unable to satisfy the claims against it. Thus, a single
claimant may not lay stake on the securities to the exclusion of all others. The other parties may have their own
claims against the insurance company under other insurance contracts it has entered into.
Respondent's Inchoate Right
The right to lay claim on the fund is dependent on the solvency of the insurer and is subject to all other
obligations of the company arising from its insurance contracts. Thus, respondent's interest is merely inchoate.
Being a mere expectancy, it has no attribute of property. At this time, it is nonexistent and may never
exist.14 Hence, it would be premature to make the security deposit answerable for CISCO's present obligation
to Del Monte Motors.
Moreover, since insolvency proceedings against CISCO have yet to be conducted, it would be impossible to
establish at this time which claimants are entitled to the security deposit and in what pro-rated amounts. Only
after all other claimants under subsisting policies issued by CISCO have been heard can respondent's share be
determined.
Powers of the Commissioner
The Insurance Code has vested the Office of the Insurance Commission with
both regulatory and adjudicatoryauthority over insurance matters.15
The general regulatory authority of the insurance commissioner is described in Section 414 of the Code as
follows:
"Sec. 414. The Insurance Commissioner shall have the duty to see that all laws relating to insurance,
insurance companies and other insurance matters, mutual benefit associations, and trusts for
charitable uses are faithfully executed and to perform the duties imposed upon him by this Code, and
shall, notwithstanding any existing laws to the contrary, have sole and exclusive authority to regulate
the issuance and sale of variable contracts as defined in section two hundred thirty-two and to
provide for the licensing of persons selling such contracts, and to issue such reasonable rules and
regulations governing the same.
"The Commissioner may issue such rulings, instructions, circulars, orders and decisions as he may deem
necessary to secure the enforcement of the provisions of this Code, subject to the approval of the
Secretary of Finance. Except as otherwise specified, decisions made by the Commissioner shall be
appealable to the Secretary of Finance." (Emphasis supplied)
Pursuant to these regulatory powers, the commissioner is authorized to (1) issue (or to refuse to issue)
certificates of authority to persons or entities desiring to engage in insurance business in the Philippines;16 (2)
revoke or suspend these certificates of authority upon finding grounds for the revocation or suspension; 17 (3)
impose upon insurance companies, their directors and/or officers and/or agents appropriate penalties -- fines,
suspension or removal from office -- for failing to comply with the Code or with any of the commissioner's
3
orders, instructions, regulations or rulings, or for otherwise conducting business in an unsafe or unsound
manner.18
Included in the above regulatory responsibilities is the duty to hold the security deposits under Sections
19119 and 203 of the Code, for the benefit and security of all policy holders. In relation to these provisions,
Section 192 of the Insurance Code states:
"Sec. 192. The Commissioner shall hold the securities, deposited as aforesaid, for the benefit and
security of all the policyholders of the company depositing the same, but shall as long as the
company is solvent, permit the company to collect the interest or dividends on the securities so
deposited, and, from time to time, with his assent, to withdraw any of such securities, upon depositing
with said Commissioner other like securities, the market value of which shall be equal to the market
value of such as may be withdrawn. In the event of any company ceasing to do business in the
Philippines the securities deposited as aforesaid shall be returned upon the company's making
application therefor and proving to the satisfaction of the Commissioner that it has no further liability
under any of its policies in the Philippines." (Emphasis supplied)
Undeniably, the insurance commissioner has been given a wide latitude of discretion to regulate the insurance
industry so as to protect the insuring public. The law specifically confers custody over the securities upon the
commissioner, with whom these investments are required to be deposited. An implied trust20 is created by the
law for the benefit of all claimants under subsisting insurance contracts issued by the insurance company.21
As the officer vested with custody of the security deposit, the insurance commissioner is in the best position
to determine if and when it may be released without prejudicing the rights of other policy holders. Before
allowing the withdrawal or the release of the deposit, the commissioner must be satisfied that the conditions
contemplated by the law are met and all policy holders protected.
Commissioner's Actions
Entitled to Great Respect
In this case, Commissioner Malinis refused to release the security deposit of CISCO. Believing that the funds
were exempt from execution as provided by law, he sought to protect other policy holders. His interpretation
of the provisions of the law carries great weight and consideration,22 as he is the head of a specialized body
tasked with the regulation of insurance matters and primarily charged with the implementation of the
Insurance Code.
The emergence of the multifarious needs of modern society necessitates the establishment of diverse
administrative agencies. In addressing these needs, the administrative agencies charged with applying and
implementing particular statutes have accumulated experience and specialized capabilities. Thus, in a long line
of cases, this Court has recognized that their construction of a statute is entitled to great respect and should
ordinarily be controlling, unless clearly shown to be in sharp conflict with the governing statute or the
Constitution and other laws.23
Clearly, then, the trial court erred in issuing the Writ of Garnishment against the security deposit of CISCO. It
follows that without the issuance of a valid order, the insurance commissioner could not have been in contempt
of court.24
WHEREFORE, the Petition is GRANTED and the assailed Order SET ASIDE. No costs.
SO ORDERED.
G.R. No. 154514. July 28, 2005
WHITE GOLD MARINE SERVICES, INC., Petitioners,
vs.
PIONEER INSURANCE AND SURETY CORPORATION AND THE STEAMSHIP MUTUAL UNDERWRITING
ASSOCIATION (BERMUDA) LTD., Respondents.
DECISION
QUISUMBING, J.:
This petition for review assails the Decision dated July 30, 2002 of the Court of Appeals in CA-G.R. SP No.
1
60144, affirming the Decision2 dated May 3, 2000 of the Insurance Commission in I.C. Adm. Case No. RD-277.
Both decisions held that there was no violation of the Insurance Code and the respondents do not need license
as insurer and insurance agent/broker.
The facts are undisputed.
White Gold Marine Services, Inc. (White Gold) procured a protection and indemnity coverage for its vessels
from The Steamship Mutual Underwriting Association (Bermuda) Limited (Steamship Mutual) through Pioneer
Insurance and Surety Corporation (Pioneer). Subsequently, White Gold was issued a Certificate of Entry and
Acceptance.3Pioneer also issued receipts evidencing payments for the coverage. When White Gold failed to
fully pay its accounts, Steamship Mutual refused to renew the coverage.
Steamship Mutual thereafter filed a case against White Gold for collection of sum of money to recover the
latter’s unpaid balance. White Gold on the other hand, filed a complaint before the Insurance Commission
claiming that Steamship Mutual violated Sections 1864 and 1875 of the Insurance Code, while Pioneer violated
Sections 299,63007 and 3018 in relation to Sections 302 and 303, thereof.
The Insurance Commission dismissed the complaint. It said that there was no need for Steamship Mutual to
secure a license because it was not engaged in the insurance business. It explained that Steamship Mutual was
a Protection and Indemnity Club (P & I Club). Likewise, Pioneer need not obtain another license as insurance
agent and/or a broker for Steamship Mutual because Steamship Mutual was not engaged in the insurance
business. Moreover, Pioneer was already licensed, hence, a separate license solely as agent/broker of
Steamship Mutual was already superfluous.
4
The Court of Appeals affirmed the decision of the Insurance Commissioner. In its decision, the appellate court
distinguished between P & I Clubs vis-à-vis conventional insurance. The appellate court also held that Pioneer
merely acted as a collection agent of Steamship Mutual.
In this petition, petitioner assigns the following errors allegedly committed by the appellate court,
FIRST ASSIGNMENT OF ERROR
THE COURT A QUO ERRED WHEN IT RULED THAT RESPONDENT STEAMSHIP IS NOT DOING BUSINESS IN THE
PHILIPPINES ON THE GROUND THAT IT COURSED . . . ITS TRANSACTIONS THROUGH ITS AGENT AND/OR
BROKER HENCE AS AN INSURER IT NEED NOT SECURE A LICENSE TO ENGAGE IN INSURANCE BUSINESS IN
THE PHILIPPINES.
SECOND ASSIGNMENT OF ERROR
THE COURT A QUO ERRED WHEN IT RULED THAT THE RECORD IS BEREFT OF ANY EVIDENCE THAT
RESPONDENT STEAMSHIP IS ENGAGED IN INSURANCE BUSINESS.
THIRD ASSIGNMENT OF ERROR
THE COURT A QUO ERRED WHEN IT RULED, THAT RESPONDENT PIONEER NEED NOT SECURE A LICENSE
WHEN CONDUCTING ITS AFFAIR AS AN AGENT/BROKER OF RESPONDENT STEAMSHIP.
FOURTH ASSIGNMENT OF ERROR
THE COURT A QUO ERRED IN NOT REVOKING THE LICENSE OF RESPONDENT PIONEER AND [IN NOT
REMOVING] THE OFFICERS AND DIRECTORS OF RESPONDENT PIONEER.9
Simply, the basic issues before us are (1) Is Steamship Mutual, a P & I Club, engaged in the insurance business
in the Philippines? (2) Does Pioneer need a license as an insurance agent/broker for Steamship Mutual?
The parties admit that Steamship Mutual is a P & I Club. Steamship Mutual admits it does not have a license
to do business in the Philippines although Pioneer is its resident agent. This relationship is reflected in the
certifications issued by the Insurance Commission.
Petitioner insists that Steamship Mutual as a P & I Club is engaged in the insurance business. To buttress its
assertion, it cites the definition of a P & I Club in Hyopsung Maritime Co., Ltd. v. Court of Appeals10 as "an
association composed of shipowners in general who band together for the specific purpose of providing
insurance cover on a mutual basis against liabilities incidental to shipowning that the members incur in favor
of third parties." It stresses that as a P & I Club, Steamship Mutual’s primary purpose is to solicit and provide
protection and indemnity coverage and for this purpose, it has engaged the services of Pioneer to act as its
agent.
Respondents contend that although Steamship Mutual is a P & I Club, it is not engaged in the insurance
business in the Philippines. It is merely an association of vessel owners who have come together to provide
mutual protection against liabilities incidental to shipowning.11 Respondents aver Hyopsung is inapplicable in
this case because the issue in Hyopsung was the jurisdiction of the court over Hyopsung.
Is Steamship Mutual engaged in the insurance business?
Section 2(2) of the Insurance Code enumerates what constitutes "doing an insurance business" or "transacting
an insurance business". These are:
(a) making or proposing to make, as insurer, any insurance contract;
(b) making, or proposing to make, as surety, any contract of suretyship as a vocation and not as merely
incidental to any other legitimate business or activity of the surety;
(c) doing any kind of business, including a reinsurance business, specifically recognized as constituting the
doing of an insurance business within the meaning of this Code;
(d) doing or proposing to do any business in substance equivalent to any of the foregoing in a manner
designed to evade the provisions of this Code.
...
The same provision also provides, the fact that no profit is derived from the making of insurance contracts,
agreements or transactions, or that no separate or direct consideration is received therefor, shall not preclude
the existence of an insurance business.12
The test to determine if a contract is an insurance contract or not, depends on the nature of the promise, the
act required to be performed, and the exact nature of the agreement in the light of the occurrence,
contingency, or circumstances under which the performance becomes requisite. It is not by what it is called.13
Basically, an insurance contract is a contract of indemnity. In it, one undertakes for a consideration to indemnify
another against loss, damage or liability arising from an unknown or contingent event.14
In particular, a marine insurance undertakes to indemnify the assured against marine losses, such as the losses
incident to a marine adventure.15 Section 9916 of the Insurance Code enumerates the coverage of marine
insurance.
Relatedly, a mutual insurance company is a cooperative enterprise where the members are both the insurer
and insured. In it, the members all contribute, by a system of premiums or assessments, to the creation of a
fund from which all losses and liabilities are paid, and where the profits are divided among themselves, in
proportion to their interest.17 Additionally, mutual insurance associations, or clubs, provide three types of
coverage, namely, protection and indemnity, war risks, and defense costs.18
5
A P & I Club is "a form of insurance against third party liability, where the third party is anyone other than the
P & I Club and the members."19 By definition then, Steamship Mutual as a P & I Club is a mutual insurance
association engaged in the marine insurance business.
The records reveal Steamship Mutual is doing business in the country albeit without the requisite certificate of
authority mandated by Section 18720 of the Insurance Code. It maintains a resident agent in the Philippines to
solicit insurance and to collect payments in its behalf. We note that Steamship Mutual even renewed its P & I
Club cover until it was cancelled due to non-payment of the calls. Thus, to continue doing business here,
Steamship Mutual or through its agent Pioneer, must secure a license from the Insurance Commission.
Since a contract of insurance involves public interest, regulation by the State is necessary. Thus, no insurer or
insurance company is allowed to engage in the insurance business without a license or a certificate of authority
from the Insurance Commission.21
Does Pioneer, as agent/broker of Steamship Mutual, need a special license?
Pioneer is the resident agent of Steamship Mutual as evidenced by the certificate of registration22 issued by
the Insurance Commission. It has been licensed to do or transact insurance business by virtue of the certificate
of authority23 issued by the same agency. However, a Certification from the Commission states that Pioneer
does not have a separate license to be an agent/broker of Steamship Mutual.24
Although Pioneer is already licensed as an insurance company, it needs a separate license to act as insurance
agent for Steamship Mutual. Section 299 of the Insurance Code clearly states:
SEC. 299 . . .
No person shall act as an insurance agent or as an insurance broker in the solicitation or procurement of
applications for insurance, or receive for services in obtaining insurance, any commission or other
compensation from any insurance company doing business in the Philippines or any agent thereof, without
first procuring a license so to act from the Commissioner, which must be renewed annually on the first day of
January, or within six months thereafter. . .
Finally, White Gold seeks revocation of Pioneer’s certificate of authority and removal of its directors and
officers. Regrettably, we are not the forum for these issues.
WHEREFORE, the petition is PARTIALLY GRANTED. The Decision dated July 30, 2002 of the Court of Appeals
affirming the Decision dated May 3, 2000 of the Insurance Commission is hereby REVERSED AND SET ASIDE.
The Steamship Mutual Underwriting Association (Bermuda) Ltd., and Pioneer Insurance and Surety Corporation
are ORDERED to obtain licenses and to secure proper authorizations to do business as insurer and insurance
agent, respectively. The petitioner’s prayer for the revocation of Pioneer’s Certificate of Authority and removal
of its directors and officers, is DENIED. Costs against respondents.
SO ORDERED.
G.R. No. L-38613 February 25, 1982
of log's during loading of the 'SS Woodlock'. The said letter (Exhibit F) reads as follows:
PACIFIC TIMBER EXPORT CORPORATION, petitioner,
vs.
THE HONORABLE COURT OF APPEALS and WORKMEN'S INSURANCE COMPANY, INC., respondents.
DE CASTRO, ** J.:
This petition seeks the review of the decision of the Court of Appeals reversing the decision of the Court of
First Instance of Manila in favor of petitioner and against private respondent which ordered the latter to pay
the sum of Pll,042.04 with interest at the rate of 12% interest from receipt of notice of loss on April 15, 1963
up to the complete payment, the sum of P3,000.00 as attorney's fees and the costs 1 thereby dismissing
petitioner s complaint with costs. 2
The findings of the of fact of the Court of Appeals, which are generally binding upon this Court, Except as shall
be indicated in the discussion of the opinion of this Court the substantial correctness of still particular finding
having been disputed, thereby raising a question of law reviewable by this Court 3 are as follows:
March 19, l963, the plaintiff secured temporary insurance from the defendant for its
exportation of 1,250,000 board feet of Philippine Lauan and Apitong logs to be shipped
from the Diapitan. Bay, Quezon Province to Okinawa and Tokyo, Japan. The defendant
issued on said date Cover Note No. 1010, insuring the said cargo of the plaintiff "Subject
to the Terms and Conditions of the WORKMEN'S INSURANCE COMPANY, INC. printed
Marine Policy form as filed with and approved by the Office of the Insurance
Commissioner (Exhibit A).
The regular marine cargo policies were issued by the defendant in favor of the plaintiff on
April 2, 1963. The two marine policies bore the numbers 53 HO 1032 and 53 HO 1033
(Exhibits B and C, respectively). Policy No. 53 H0 1033 (Exhibit B) was for 542 pieces of
logs equivalent to 499,950 board feet. Policy No. 53 H0 1033 was for 853 pieces of logs
equivalent to 695,548 board feet (Exhibit C). The total cargo insured under the two marine
policies accordingly consisted of 1,395 logs, or the equivalent of 1,195.498 bd. ft.
After the issuance of Cover Note No. 1010 (Exhibit A), but before the issuance of the two
marine policies Nos. 53 HO 1032 and 53 HO 1033, some of the logs intended to be
exported were lost during loading operations in the Diapitan Bay. The logs were to be
loaded on the 'SS Woodlock' which docked about 500 meters from the shoreline of the
Diapitan Bay. The logs were taken from the log pond of the plaintiff and from which they
were towed in rafts to the vessel. At about 10:00 o'clock a. m. on March 29, 1963, while
the logs were alongside the vessel, bad weather developed resulting in 75 pieces of logs
which were rafted together co break loose from each other. 45 pieces of logs were
salvaged, but 30 pieces were verified to have been lost or washed away as a result of the
accident.
6
In a letter dated April 4, 1963, the plaintiff informed the defendant about the loss of 'appropriately 32 pieces
April 4, 1963
Workmen's Insurance Company, Inc. Manila, Philippines
Gentlemen:
This has reference to Insurance Cover Note No. 1010 for shipment of 1,250,000 bd. ft.
Philippine Lauan and Apitong Logs. We would like to inform you that we have received
advance preliminary report from our Office in Diapitan, Quezon that we have lost
approximately 32 pieces of logs during loading of the SS Woodlock.
We will send you an accurate report all the details including values as soon as same will
be reported to us.
Thank you for your attention, we wish to remain.
Very respectfully yours,
PACIFIC TIMBER EXPORT CORPORATION
(Sgd.) EMMANUEL S. ATILANO Asst. General Manager.
Although dated April 4, 1963, the letter was received in the office of the defendant only
on April 15, 1963, as shown by the stamp impression appearing on the left bottom corner
of said letter. The plaintiff subsequently submitted a 'Claim Statement demanding
payment of the loss under Policies Nos. 53 HO 1032 and 53 HO 1033, in the total amount
of P19,286.79 (Exhibit G).
On July 17, 1963, the defendant requested the First Philippine Adjustment Corporation to
inspect the loss and assess the damage. The adjustment company submitted its 'Report
on August 23, 1963 (Exhibit H). In said report, the adjuster found that 'the loss of 30 pieces
of logs is not covered by Policies Nos. 53 HO 1032 and 1033 inasmuch as said policies
covered the actual number of logs loaded on board the 'SS Woodlock' However, the loss
of 30 pieces of logs is within the 1,250,000 bd. ft. covered by Cover Note 1010 insured for
$70,000.00.
On September 14, 1963, the adjustment company submitted a computation of the
defendant's probable liability on the loss sustained by the shipment, in the total amount
of Pl1,042.04 (Exhibit 4).
 On January 13, 1964, the defendant wrote the plaintiff denying the latter's claim, on the
ground they defendant's investigation revealed that the entire shipment of logs covered
by the two marines policies No. 53 110 1032 and 713 HO 1033 were received in good
order at their point of destination. It was further stated that the said loss may be
considered as covered under Cover Note No. 1010 because the said Note had become
'null and void by virtue of the issuance of Marine Policy Nos. 53 HO 1032 and 1033'(Exhibit
J-1). The denial of the claim by the defendant was brought by the plaintiff to the attention
of the Insurance Commissioner by means of a letter dated March 21, 1964 (Exhibit K). In a
reply letter dated March 30, 1964, Insurance Commissioner Francisco Y. Mandanas
observed that 'it is only fair and equitable to indemnify the insured under Cover Note No.
1010', and advised early settlement of the said marine loss and salvage claim (Exhibit L).
On June 26, 1964, the defendant informed the Insurance Commissioner that, on advice of
their attorneys, the claim of the plaintiff is being denied on the ground that the cover note
is null and void for lack of valuable consideration (Exhibit M). 4
Petitioner assigned as errors of the Court of Appeals, the following:
I The adjuster went as far as submitting his report to respondent, as well as its computation of respondent's
THE COURT OF APPEALS ERRED IN HOLDING THAT THE COVER NOTE WAS NULL AND
VOID FOR LACK OF VALUABLE CONSIDERATION BECAUSE THE COURT DISREGARDED
THE PROVEN FACTS THAT PREMIUMS FOR THE COMPREHENSIVE INSURANCE
COVERAGE THAT INCLUDED THE COVER NOTE WAS PAID BY PETITIONER AND THAT
INCLUDED THE COVER NOTE WAS PAID BY PETITIONER AND THAT NO SEPARATE
PREMIUMS ARE COLLECTED BY PRIVATE RESPONDENT ON ALL ITS COVER NOTES.
II
THE COURT OF APPEALS ERRED IN HOLDING THAT PRIVATE RESPONDENT WAS
RELEASED FROM LIABILITY UNDER THE COVER NOTE DUE TO UNREASONABLE DELAY IN
GIVING NOTICE OF LOSS BECAUSE THE COURT DISREGARDED THE PROVEN FACT THAT
PRIVATE RESPONDENT DID NOT PROMPTLY AND SPECIFICALLY OBJECT TO THE CLAIM
ON THE GROUND OF DELAY IN GIVING NOTICE OF LOSS AND, CONSEQUENTLY,
OBJECTIONS ON THAT GROUND ARE WAIVED UNDER SECTION 84 OF THE INSURANCE
ACT. 5
1. Petitioner contends that the Cover Note was issued with a consideration when, by express stipulation, the
cover note is made subject to the terms and conditions of the marine policies, and the payment of premiums
is one of the terms of the policies. From this undisputed fact, We uphold petitioner's submission that the Cover
Note was not without consideration for which the respondent court held the Cover Note as null and void, and
denied recovery therefrom. The fact that no separate premium was paid on the Cover Note before the loss
insured against occurred, does not militate against the validity of petitioner's contention, for no such premium
could have been paid, since by the nature of the Cover Note, it did not contain, as all Cover Notes do not
contain particulars of the shipment that would serve as basis for the computation of the premiums. As a logical
consequence, no separate premiums are intended or required to be paid on a Cover Note. This is a fact
7
admitted by an official of respondent company, Juan Jose Camacho, in charge of issuing cover notes of the
respondent company (p. 33, tsn, September 24, 1965).
At any rate, it is not disputed that petitioner paid in full all the premiums as called for by the statement issued
by private respondent after the issuance of the two regular marine insurance policies, thereby leaving no
account unpaid by petitioner due on the insurance coverage, which must be deemed to include the Cover
Note. If the Note is to be treated as a separate policy instead of integrating it to the regular policies
subsequently issued, the purpose and function of the Cover Note would be set at naught or rendered
meaningless, for it is in a real sense a contract, not a mere application for insurance which is a mere offer. 6
It may be true that the marine insurance policies issued were for logs no longer including those which had
been lost during loading operations. This had to be so because the risk insured against is not for loss during
operations anymore, but for loss during transit, the logs having already been safely placed aboard. This would
make no difference, however, insofar as the liability on the cover note is concerned, for the number or volume
of logs lost can be determined independently as in fact it had been so ascertained at the instance of private
respondent itself when it sent its own adjuster to investigate and assess the loss, after the issuance of the
marine insurance policies.
liability on the insurance coverage. This coverage could not have been no other than what was stipulated in
the Cover Note, for no loss or damage had to be assessed on the coverage arising from the marine insurance
policies. For obvious reasons, it was not necessary to ask petitioner to pay premium on the Cover Note, for the
loss insured against having already occurred, the more practical procedure is simply to deduct the premium
from the amount due the petitioner on the Cover Note. The non-payment of premium on the Cover Note is,
therefore, no cause for the petitioner to lose what is due it as if there had been payment of premium, for non-
payment by it was not chargeable against its fault. Had all the logs been lost during the loading operations,
but after the issuance of the Cover Note, liability on the note would have already arisen even before payment
of premium. This is how the cover note as a "binder" should legally operate otherwise, it would serve no
practical purpose in the realm of commerce, and is supported by the doctrine that where a policy is delivered
without requiring payment of the premium, the presumption is that a credit was intended and policy is valid. 7
2. The defense of delay as raised by private respondent in resisting the claim cannot be sustained. The law
requires this ground of delay to be promptly and specifically asserted when a claim on the insurance agreement
is made. The undisputed facts show that instead of invoking the ground of delay in objecting to petitioner's
claim of recovery on the cover note, it took steps clearly indicative that this particular ground for objection to
the claim was never in its mind. The nature of this specific ground for resisting a claim places the insurer on
duty to inquire when the loss took place, so that it could determine whether delay would be a valid ground
upon which to object to a claim against it.
As already stated earlier, private respondent's reaction upon receipt of the notice of loss, which was on April
15, 1963, was to set in motion from July 1963 what would be necessary to determine the cause and extent of
the loss, with a view to the payment thereof on the insurance agreement. Thus it sent its adjuster to investigate
and assess the loss in July, 1963. The adjuster submitted his report on August 23, 1963 and its computation of
respondent's liability on September 14, 1963. From April 1963 to July, 1963, enough time was available for
private respondent to determine if petitioner was guilty of delay in communicating the loss to respondent
company. In the proceedings that took place later in the Office of the Insurance Commissioner, private
respondent should then have raised this ground of delay to avoid liability. It did not do so. It must be because
it did not find any delay, as this Court fails to find a real and substantial sign thereof. But even on the
assumption that there was delay, this Court is satisfied and convinced that as expressly provided by law, waiver
can successfully be raised against private respondent. Thus Section 84 of the Insurance Act provides:
Section 84.—Delay in the presentation to an insurer of notice or proof of loss is waived if
caused by any act of his or if he omits to take objection promptly and specifically upon
that ground.
From what has been said, We find duly substantiated petitioner's assignments of error.
ACCORDINGLY, the appealed decision is set aside and the decision of the Court of First Instance is reinstated
in toto with the affirmance of this Court. No special pronouncement as to costs.
SO ORDERED.
G.R. No. 198588 July 11, 2012
UNITED MERCHANTS CORPORATION, Petitioner,
vs.
COUNTRY BANKERS INSURANCE CORPORATION, Respondent.
DECISION
CARPIO, J.:
The Case
This Petition for Review on Certiorari1 seeks to reverse the Court of Appeals’ Decision2 dated 16 June 2011 and
its Resolution3 dated 8 September 2011 in CA-G.R. CV No. 85777. The Court of Appeals reversed the
Decision4 of the Regional Trial Court (RTC) of Manila, Branch 3, and ruled that the claim on the Insurance Policy
is void.
The Facts
The facts, as culled from the records, are as follows:
Petitioner United Merchants Corporation (UMC) is engaged in the business of buying, selling, and
manufacturing Christmas lights. UMC leased a warehouse at 19-B Dagot Street, San Jose Subdivision, Barrio
Manresa, Quezon City, where UMC assembled and stored its products.
On 6 September 1995, UMC’s General Manager Alfredo Tan insured UMC’s stocks in trade of Christmas lights
against fire with defendant Country Bankers Insurance Corporation (CBIC) for ₱15,000,000.00. The Fire
8
Insurance Policy No. F-HO/95-576 (Insurance Policy) and Fire Invoice No. 12959A, valid until 6 September 1996,
states:
AMOUNT OF INSURANCE: FIFTEEN
MILLION PESOS
PHILIPPINE
CURRENCY
xxx
PROPERTY INSURED: On stocks in trade only, consisting of Christmas Lights, the properties of the Assured or
held by them in trust, on commissions, or on joint account with others and/or for which they are responsible
in the event of loss and/or damage during the currency of this policy, whilst contained in the building of one
lofty storey in height, constructed of concrete and/or hollow blocks with portion of galvanized iron sheets,
under galvanized iron rood, occupied as Christmas lights storage.5
On 7 May 1996, UMC and CBIC executed Endorsement F/96-154 and Fire Invoice No. 16583A to form part of
the Insurance Policy. Endorsement F/96-154 provides that UMC’s stocks in trade were insured against
additional perils, to wit: "typhoon, flood, ext. cover, and full earthquake." The sum insured was also increased
to ₱50,000,000.00 effective 7 May 1996 to 10 January 1997. On 9 May 1996, CBIC issued Endorsement F/96-
157 where the name of the assured was changed from Alfredo Tan to UMC.
On 3 July 1996, a fire gutted the warehouse rented by UMC. CBIC designated CRM Adjustment Corporation
(CRM) to investigate and evaluate UMC’s loss by reason of the fire. CBIC’s reinsurer, Central Surety, likewise
requested the National Bureau of Investigation (NBI) to conduct a parallel investigation. On 6 July 1996, UMC,
through CRM, submitted to CBIC its Sworn Statement of Formal Claim, with proofs of its loss.
On 20 November 1996, UMC demanded for at least fifty percent (50%) payment of its claim from CBIC. On 25
February 1997, UMC received CBIC’s letter, dated 10 January 1997, rejecting UMC’s claim due to breach of
Condition No. 15 of the Insurance Policy. Condition No. 15 states:
If the claim be in any respect fraudulent, or if any false declaration be made or used in support thereof, or if
any fraudulent means or devices are used by the Insured or anyone acting in his behalf to obtain any benefit
under this Policy; or if the loss or damage be occasioned by the willful act, or with the connivance of the
Insured, all the benefits under this Policy shall be forfeited.6
On 19 February 1998, UMC filed a Complaint7 against CBIC with the RTC of Manila. UMC anchored its insurance
claim on the Insurance Policy, the Sworn Statement of Formal Claim earlier submitted, and the Certification
dated 24 July 1996 made by Deputy Fire Chief/Senior Superintendent Bonifacio J. Garcia of the Bureau of Fire
Protection. The Certification dated 24 July 1996 provides that:
This is to certify that according to available records of this office, on or about 6:10 P.M. of July 3, 1996, a fire
broke out at United Merchants Corporation located at 19-B Dag[o]t Street, Brgy. Manresa, Quezon City
incurring an estimated damage of Fifty-Five Million Pesos (₱55,000,000.00) to the building and contents, while
the reported insurance coverage amounted to Fifty Million Pesos (₱50,000,000.00) with Country Bankers
Insurance Corporation.
The Bureau further certifies that no evidence was gathered to prove that the establishment was willfully,
feloniously and intentionally set on fire.
That the investigation of the fire incident is already closed being ACCIDENTAL in nature. 8 November 1996, they concluded that arson was committed based from their interview with barangay officials
In its Answer with Compulsory Counterclaim9 dated 4 March 1998, CBIC admitted the issuance of the Insurance
Policy to UMC but raised the following defenses: (1) that the Complaint states no cause of action; (2) that
UMC’s claim has already prescribed; and (3) that UMC’s fire claim is tainted with fraud. CBIC alleged that UMC’s
claim was fraudulent because UMC’s Statement of Inventory showed that it had no stocks in trade as of 31
December 1995, and that UMC’s suspicious purchases for the year 1996 did not even amount to
₱25,000,000.00. UMC’s GIS and Financial Reports further revealed that it had insufficient capital, which meant
UMC could not afford the alleged ₱50,000,000.00 worth of stocks in trade.
In its Reply10 dated 20 March 1998, UMC denied violation of Condition No. 15 of the Insurance Policy. UMC
claimed that it did not make any false declaration because the invoices were genuine and the Statement of
Inventory was for internal revenue purposes only, not for its insurance claim.
During trial, UMC presented five witnesses. The first witness was Josie Ebora (Ebora), UMC’s disbursing officer.
Ebora testified that UMC’s stocks in trade, at the time of the fire, consisted of: (1) raw materials for its Christmas
lights; (2) Christmas lights already assembled; and (3) Christmas lights purchased from local suppliers. These
stocks in trade were delivered from August 1995 to May 1996. She stated that Straight Cargo Commercial
Forwarders delivered the imported materials to the warehouse, evidenced by delivery receipts. However, for
the year 1996, UMC had no importations and only bought from its local suppliers. Ebora identified the suppliers
as Fiber Technology Corporation from which UMC bought stocks worth ₱1,800,000.00 on 20 May 1996; Fuze
Industries Manufacturer Philippines from which UMC bought stocks worth ₱19,500,000.00 from 20 January
1996 to 23 February 1996; and Tomco Commercial Press from which UMC bought several Christmas boxes.
Ebora testified that all these deliveries were not yet paid. Ebora also presented UMC’s Balance Sheet, Income
Statement and Statement of Cash Flow. Per her testimony, UMC’s purchases amounted to ₱608,986.00 in 1994;
₱827,670.00 in 1995; and ₱20,000,000.00 in 1996. Ebora also claimed that UMC had sales only from its fruits
business but no sales from its Christmas lights for the year 1995.
The next witness, Annie Pabustan (Pabustan), testified that her company provided about 25 workers to
assemble and pack Christmas lights for UMC from 28 March 1996 to 3 July 1996. The third witness,
Metropolitan Bank and Trust Company (MBTC) Officer Cesar Martinez, stated that UMC opened letters of credit
with MBTC for the year 1995 only. The fourth witness presented was Ernesto Luna (Luna), the delivery checker
of Straight Commercial Cargo Forwarders. Luna affirmed the delivery of UMC’s goods to its warehouse on 13
August 1995, 6 September 1995, 8 September 1995, 24 October 1995, 27 October 1995, 9 November 1995,
and 19 December 1995. Lastly, CRM’s adjuster Dominador Victorio testified that he inspected UMC’s
warehouse and prepared preliminary reports in this connection.
On the other hand, CBIC presented the claims manager Edgar Caguindagan (Caguindagan), a Securities and
Exchange Commission (SEC) representative, Atty. Ernesto Cabrera (Cabrera), and NBI Investigator Arnold
Lazaro (Lazaro). Caguindagan testified that he inspected the burned warehouse on 5 July 1996, took pictures
9
of it and referred the claim to an independent adjuster. The SEC representative’s testimony was dispensed with,
since the parties stipulated on the existence of certain documents, to wit: (1) UMC’s GIS for 1994-1997; (2)
UMC’s Financial Report as of 31 December 1996; (3) SEC Certificate that UMC did not file GIS or Financial
Reports for certain years; and (4) UMC’s Statement of Inventory as of 31 December 1995 filed with the BIR.
Cabrera and Lazaro testified that they were hired by Central Surety to investigate UMC’s claim. On 19
and the pictures showing that blackened surfaces were present at different parts of the warehouse. On cross-
examination, Lazaro admitted that they did not conduct a forensic investigation of the warehouse, nor did they
file a case for arson.
For rebuttal, UMC presented Rosalinda Batallones (Batallones), keeper of the documents of UCPB General
Insurance, the insurer of Perfect Investment Company, Inc., the warehouse owner. When asked to bring
documents related to the insurance of Perfect Investment Company, Inc., Batallones brought the papers of
Perpetual Investment, Inc.
The Ruling of the Regional Trial Court
On 16 June 2005, the RTC of Manila, Branch 3, rendered a Decision in favor of UMC, the dispositive portion of
which reads:
WHEREFORE, judgment is hereby rendered in favor of plaintiff and ordering defendant to pay plaintiff:
a) the sum of ₱43,930,230.00 as indemnity with interest thereon at 6% per annum from November
2003 until fully paid;
b) the sum of ₱100,000.00 for exemplary damages;
c) the sum of ₱100,000.00 for attorney’s fees; and
d) the costs of suit.
Defendant’s counterclaim is denied for lack of merit.
SO ORDERED.11
The RTC found no dispute as to UMC’s fire insurance contract with CBIC. Thus, the RTC ruled for UMC’s
entitlement to the insurance proceeds, as follows:
Fraud is never presumed but must be proved by clear and convincing evidence. (see Alonso v. Cebu Country
Club, 417 SCRA 115 [2003]) Defendant failed to establish by clear and convincing evidence that the documents
submitted to the SEC and BIR were true. It is common business practice for corporations to have 2 sets of
reports/statements for tax purposes. The stipulated documents of plaintiff (Exhs. 2 – 8) may not have been
accurate.
The conflicting findings of defendant’s adjuster, CRM Adjustment [with stress] and that made by Atty. Cabrera 1994 - ₱608,986.00
& Mr. Lazaro for Central Surety shall be resolved in favor of the former. Definitely the former’s finding is more
credible as it was made soon after the fire while that of the latter was done 4 months later. Certainly it would 1995 - ₱827,670.00
be a different situation as the site was no longer the same after the clearing up operation which is normal after
a fire incident. The Christmas lights and parts could have been swept away. Hence the finding of the latter
appears to be speculative to benefit the reinsurer and which defendant wants to adopt to avoid liability. 1996 - ₱20,000,000.00 (more or less) which were purchased for a period of one month.

The CRM Adjustment report found no arson and confirmed substantial stocks in the burned warehouse (Exhs. Third, We shall also direct our attention to the alleged true and complete purchases of the plaintiff-appellee
QQQ) [underscoring supplied]. This is bolstered by the BFP certification that there was no proof of arson and as well as the value of all stock-in-trade it had at the time that the fire occurred. Thus:
the fire was accidental (Exhs. PPP). The certification by a government agency like BFP is presumed to be a
regular performance of official duty. "Absent convincing evidence to the contrary, the presumption of
Amount
regularity in the performance of official functions has to be upheld." (People vs. Lapira, 255 SCRA 85) The report Exhibit Source Dates Covered
(pesos)
of UCPB General Insurance’s adjuster also found no arson so that the burned warehouse owner PIC was
indemnified.12 Exhs. "P"-"DD", Fuze Industries 19,550,400.00 January 20, 1996
inclusive Manufacturer Phils. January 31, 1996
Hence, CBIC filed an appeal with the Court of Appeals (CA). February 12, 1996
February 20, 1996
The Ruling of the Court of Appeals February 23, 1996

Exhs. "EE"-"HH", Tomco Commercial Press 1,712,000.00 December 19,

On 16 June 2011, the CA promulgated its Decision in favor of CBIC. The dispositive portion of the Decision inclusive 1995
reads: January 24, 1996
February 21, 1996
WHEREFORE, in view of the foregoing premises, the instant appeal is GRANTED and the Decision of the November 24,
Regional Trial Court, of the National Judicial Capital Region, Branch 3 of the City of Manila dated June 16, 2005 1995
in Civil Case No. 98-87370 is REVERSED and SET ASIDE. The plaintiff-appellee’s claim upon its insurance policy
is deemed avoided. Exhs. "II"-"QQ", Precious Belen 2,720,400.00 January 13, 1996
inclusive Trading January 19, 1996
January 26, 1996
SO ORDERED.13
February 3, 1996
February 13, 1996
The CA ruled that UMC’s claim under the Insurance Policy is void. The CA found that the fire was intentional in February 20, 1996
origin, considering the array of evidence submitted by CBIC, particularly the pictures taken and the reports of February 27, 1996
Cabrera and Lazaro, as opposed to UMC’s failure to explain the details of the alleged fire accident. In addition,
it found that UMC’s claim was overvalued through fraudulent transactions. The CA ruled: Exhs. "RR"- Wisdom Manpower 361,966.00 April 3, 1996
"EEE", inclusive Services April 12, 1996
April 19, 1996
We have meticulously gone over the entirety of the evidence submitted by the parties and have come up with
April 26, 1996
a conclusion that the claim of the plaintiff-appellee was indeed overvalued by transactions which were
May 3, 1996
fraudulently concocted so that the full coverage of the insurance policy will have to be fully awarded to the
May 10, 1996
plaintiff-appellee.
May 17, 1996
May 24, 1996
First, We turn to the backdrop of the plaintiff-appellee’s case, thus, [o]n September 6, 1995 its stocks-in-trade June 7, 1996
were insured for Fifteen Million Pesos and on May 7, 1996 the same was increased to 50 Million Pesos. Two June 14, 1996
months thereafter, a fire gutted the plaintiff-appellee’s warehouse. June 21, 1996
June 28, 1996
Second, We consider the reported purchases of the plaintiff-appellee as shown in its financial report dated July 5, 1996
December 31, 1996 vis-à-vis the testimony of Ms. Ebora thus:
10
 II.
Exhs. "GGG"- Costs of Letters of 15,159,144.71 May 29, 1995
"NNN", inclusive Credit for June 15, 1995
imported raw July 5, 1995 WHETHER THE COURT OF APPEALS MADE A RULING INCONSISTENT WITH LAW, APPLICABLE
materials September 4, 1995 JURISPRUDENCE AND EVIDENCE WHEN IT FOUND THAT PETITIONER BREACHED ITS WARRANTY.16
October 2, 1995
October 27, 1995 The Ruling of the Court
January 8, 1996
March 19, 1996
At the outset, CBIC assails this petition as defective since what UMC ultimately wants this Court to review are
questions of fact. However, UMC argues that where the findings of the CA are in conflict with those of the trial
Exhs. "GGG-11" SCCFI statements of 384,794.38 June 15, 1995
court, a review of the facts may be made. On this procedural issue, we find UMC’s claim meritorious.
- "GGG-24", account June 28, 1995
"HHH-12", "HHH-22", "III-11", "III- August 1, 1995
14", September 4, 1995 A petition for review under Rule 45 of the Rules of Court specifically provides that only questions of law may
"JJJ-13", "KKK-11", "LLL-5" September 8, 1995 be raised. The findings of fact of the CA are final and conclusive and this Court will not review them on
September 11, appeal,17 subject to exceptions as when the findings of the appellate court conflict with the findings of the trial
1995 court.18 Clearly, the present case falls under the exception. Since UMC properly raised the conflicting findings
October 30, 199[5] of the lower courts, it is proper for this Court to resolve such contradiction.
November 10,
1995 Having settled the procedural issue, we proceed to the primordial issue which boils down to whether UMC is
December 21, entitled to claim from CBIC the full coverage of its fire insurance policy.
1995

TOTAL 44,315,024.31
Fourth, We turn to the allegation of fraud by the defendant-appellant by thoroughly looking through the
pieces of evidence that it adduced during the trial. The latter alleged that fraud is present in the case at bar as
shown by the discrepancy of the alleged purchases from that of the reported purchases made by plaintiff-
appellee. It had also averred that fraud is present when upon verification of the address of Fuze Industries, its
office is nowhere to be found. Also, the defendant-appellant expressed grave doubts as to the purchases of
the plaintiff-appellee sometime in 1996 when such purchases escalated to a high 19.5 Million Pesos without
any contract to back it up.14
On 7 July 2011, UMC filed a Motion for Reconsideration,15 which the CA denied in its Resolution dated 8
September 2011. Hence, this petition.
The Issues
UMC seeks a reversal and raises the following issues for resolution:
I.
WHETHER THE COURT OF APPEALS MADE A RULING INCO[N]SISTENT WITH LAW, APPLICABLE
JURISPRUDENCE AND EVIDENCE AS TO THE EXISTENCE OF ARSON AND FRAUD IN THE ABSENCE
OF "MATERIALLY CONVINCING EVIDENCE."
UMC contends that because it had already established a prima facie case against CBIC which failed to prove
its defense, UMC is entitled to claim the full coverage under the Insurance Policy. On the other hand, CBIC
contends that because arson and fraud attended the claim, UMC is not entitled to recover under Condition
No. 15 of the Insurance Policy.
Burden of proof is the duty of any party to present evidence to establish his claim or defense by the amount
of evidence required by law,19 which is preponderance of evidence in civil cases.20 The party, whether plaintiff
or defendant, who asserts the affirmative of the issue has the burden of proof to obtain a favorable
judgment.21Particularly, in insurance cases, once an insured makes out a prima facie case in its favor, the burden
of evidence shifts to the insurer to controvert the insured’s prima facie case. 22 In the present case, UMC
established a prima facie case against CBIC. CBIC does not dispute that UMC’s stocks in trade were insured
against fire under the Insurance Policy and that the warehouse, where UMC’s stocks in trade were stored, was
gutted by fire on 3 July 1996, within the duration of the fire insurance. However, since CBIC alleged an excepted
risk, then the burden of evidence shifted to CBIC to prove such exception.1âwphi1
An insurer who seeks to defeat a claim because of an exception or limitation in the policy has the burden of
establishing that the loss comes within the purview of the exception or limitation.23 If loss is proved apparently
within a contract of insurance, the burden is upon the insurer to establish that the loss arose from a cause of
loss which is excepted or for which it is not liable, or from a cause which limits its liability.24 In the present case,
CBIC failed to discharge its primordial burden of establishing that the damage or loss was caused by arson, a
limitation in the policy.
In prosecutions for arson, proof of the crime charged is complete where the evidence establishes: (1) the corpus
delicti, that is, a fire caused by a criminal act; and (2) the identity of the defendants as the one responsible for
the crime.25 Corpus delicti means the substance of the crime, the fact that a crime has actually been

11
committed.26 This is satisfied by proof of the bare occurrence of the fire and of its having been intentionally
caused.27
In the present case, CBIC’s evidence did not prove that the fire was intentionally caused by the insured. First, the
findings of CBIC’s witnesses, Cabrera and Lazaro, were based on an investigation conducted more than four
months after the fire. The testimonies of Cabrera and Lazaro, as to the boxes doused with kerosene as told to
them by barangay officials, are hearsay because the barangay officials were not presented in court. Cabrera
and Lazaro even admitted that they did not conduct a forensic investigation of the warehouse nor did they file
a case for arson.28Second, the Sworn Statement of Formal Claim submitted by UMC, through CRM, states that
the cause of the fire was "faulty electrical wiring/accidental in nature." CBIC is bound by this evidence because
in its Answer, it admitted that it designated CRM to evaluate UMC’s loss. Third, the Certification by the Bureau
of Fire Protection states that the fire was accidental in origin. This Certification enjoys the presumption of
regularity, which CBIC failed to rebut.
Contrary to UMC’s allegation, CBIC’s failure to prove arson does not mean that it also failed to prove fraud. Qua
Chee Gan v. Law Union29 does not apply in the present case. In Qua Chee Gan,30 the Court dismissed the
allegation of fraud based on the dismissal of the arson case against the insured, because the evidence was
identical in both cases, thus:
While the acquittal of the insured in the arson case is not res judicata on the present civil action, the insurer’s
evidence, to judge from the decision in the criminal case, is practically identical in both cases and must lead to
the same result, since the proof to establish the defense of connivance at the fire in order to defraud the insurer
"cannot be materially less convincing than that required in order to convict the insured of the crime of arson"
(Bachrach vs. British American Assurance Co., 17 Phil. 536). 31
In the present case, arson and fraud are two separate grounds based on two different sets of evidence, either
of which can void the insurance claim of UMC. The absence of one does not necessarily result in the absence
of the
other. Thus, on the allegation of fraud, we affirm the findings of the Court of Appeals.
Condition No. 15 of the Insurance Policy provides that all the benefits under the policy shall be forfeited, if the
claim be in any respect fraudulent, or if any false declaration be made or used in support thereof, to wit:
15. If the claim be in any respect fraudulent, or if any false declaration be made or used in support thereof, or
if any fraudulent means or devices are used by the Insured or anyone acting in his behalf to obtain any benefit
under this Policy; or if the loss or damage be occasioned by the willful act, or with the connivance of the
Insured, all the benefits under this Policy shall be forfeited.
In Uy Hu & Co. v. The Prudential Assurance Co., Ltd.,32 the Court held that where a fire insurance policy provides
that "if the claim be in any respect fraudulent, or if any false declaration be made or used in support thereof,
or if any fraudulent means or devices are used by the Insured or anyone acting on his behalf to obtain any
benefit under this Policy," and the evidence is conclusive that the proof of claim which the insured submitted
was false and fraudulent both as to the kind, quality and amount of the goods and their value destroyed by
12
the fire, such a proof of claim is a bar against the insured from recovering on the policy even for the amount
of his actual loss.
In the present case, as proof of its loss of stocks in trade amounting to ₱50,000,000.00, UMC submitted its
Sworn Statement of Formal Claim together with the following documents: (1) letters of credit and invoices for
raw materials, Christmas lights and cartons purchased; (2) charges for assembling the Christmas lights; and (3)
delivery receipts of the raw materials. However, the charges for assembling the Christmas lights and delivery
receipts could not support its insurance claim. The Insurance Policy provides that CBIC agreed to insure UMC’s
stocks in trade. UMC defined stock in trade as tangible personal property kept for sale or traffic.33 Applying
UMC’s definition, only the letters of credit and invoices for raw materials, Christmas lights and cartons may be
considered.
The invoices, however, cannot be taken as genuine. The invoices reveal that the stocks in trade purchased for
1996 amounts to ₱20,000,000.00 which were purchased in one month. Thus, UMC needs to prove purchases
amounting to ₱30,000,000.00 worth of stocks in trade for 1995 and prior years. However, in the Statement of
Inventory it submitted to the BIR, which is considered an entry in official records, 34 UMC stated that it had no
stocks in trade as of 31 December 1995. In its defense, UMC alleged that it did not include as stocks in trade
the raw materials to be assembled as Christmas lights, which it had on 31 December 1995. However, as proof
of its loss, UMC submitted invoices for raw materials, knowing that the insurance covers only stocks in trade.
Equally important, the invoices (Exhibits "P"-"DD") from Fuze Industries Manufacturer Phils. were suspicious.
The purchases, based on the invoices and without any supporting contract, amounted to ₱19,550,400.00 worth
of Christmas lights from 20 January 1996 to 23 February 1996. The uncontroverted testimony of Cabrera
revealed that there was no Fuze Industries Manufacturer Phils. located at "55 Mahinhin St., Teacher’s Village,
Quezon City," the business address appearing in the invoices and the records of the Department of Trade &
Industry. Cabrera testified that:
A: Then we went personally to the address as I stated a while ago appearing in the record furnished by the
United Merchants Corporation to the adjuster, and the adjuster in turn now, gave us our basis in conducting
investigation, so we went to this place which according to the records, the address of this company but there
was no office of this company.
Q: You mentioned Atty. Cabrera that you went to Diliman, Quezon City and discover the address indicated by
the United Merchants as the place of business of Fuze Industries Manufacturer, Phils. was a residential place,
what then did you do after determining that it was a residential place?
A: We went to the owner of the alleged company as appearing in the Department of Trade & Industry record,
and as appearing a certain Chinese name Mr. Huang, and the address as appearing there is somewhere in
Binondo. We went personally there together with the NBI Agent and I am with them when the subpoena was
served to them, but a male person approached us and according to him, there was no Fuze Industries
Manufacturer, Phils., company in that building sir.35
In Yu Ban Chuan v. Fieldmen’s Insurance, Co., Inc.,36 the Court ruled that the submission of false invoices to the
adjusters establishes a clear case of fraud and misrepresentation which voids the insurer’s liability as per
condition of the policy. Their falsity is the best evidence of the fraudulent character of plaintiff’s
claim.37 In Verendia v. Court of Appeals,38 where the insured presented a fraudulent lease contract to support
his claim for insurance benefits, the Court held that by its false declaration, the insured forfeited all benefits
under the policy provision similar to Condition No. 15 of the Insurance Policy in this case.
Furthermore, UMC’s Income Statement indicated that the purchases or costs of sales are ₱827,670.00 for 1995
and ₱1,109,190.00 for 1996 or a total of ₱1,936,860.00.39 To corroborate this fact, Ebora testified that:
On UMC’s allegation that it did not breach any warranty, it may be argued that the discrepancies do not, by
themselves, amount to a breach of warranty. However, the Insurance Code provides that "a policy may declare
that a violation of specified provisions thereof shall avoid it."49 Thus, in fire insurance policies, which contain
provisions such as Condition No. 15 of the Insurance Policy, a fraudulent discrepancy between the actual loss
and that claimed in the proof of loss voids the insurance policy. Mere filing of such a claim will exonerate the
insurer.50

Q: Based on your 1995 purchases, how much were the purchases made in 1995?
Considering that all the circumstances point to the inevitable conclusion that UMC padded its claim and was
guilty of fraud, UMC violated Condition No. 15 of the Insurance Policy. Thus, UMC forfeited whatever benefits
A: The purchases made by United Merchants Corporation for the last year 1995 is ₱827,670.[00] sir it may be entitled under the Insurance Policy, including its insurance claim.

Q: And how about in 1994? While it is a cardinal principle of insurance law that a contract of insurance is to be construed liberally in favor
of the insured and strictly against the insurer company,51 contracts of insurance, like other contracts, are to be
A: In 1994, it’s ₱608,986.00 sir. construed according to the sense and meaning of the terms which the parties themselves have used.52 If such
terms are clear and unambiguous, they must be taken and understood in their plain, ordinary and popular
Q: These purchases were made for the entire year of 1995 and 1994 respectively, am I correct? sense. Courts are not permitted to make contracts for the parties; the function and duty of the courts is simply
to enforce and carry out the contracts actually made.53

A: Yes sir, for the year 1994 and 1995.40 (Emphasis supplied)
WHEREFORE, we DENY the petition. We AFFIRM the 16 June 2011 Decision and the 8 September 2011
Resolution of the Court of Appeals in CA-G.R. CV No. 85777.
In its 1996 Financial Report, which UMC admitted as existing, authentic and duly executed during the 4
December 2002 hearing, it had ₱1,050,862.71 as total assets and ₱167,058.47 as total liabilities.41
SO ORDERED.

Thus, either amount in UMC’s Income Statement or Financial Reports is twenty-five times the claim UMC seeks
to enforce. The RTC itself recognized that UMC padded its claim when it only allowed ₱43,930,230.00 as
insurance claim. UMC supported its claim of ₱50,000,000.00 with the Certification from the Bureau of Fire
Protection stating that "x x x a fire broke out at United Merchants Corporation located at 19-B Dag[o]t Street,
Brgy. Manresa, Quezon City incurring an estimated damage of Fifty- Five Million Pesos (₱55,000,000.00) to the
building and contents x x x." However, this Certification only proved that the estimated damage of
₱55,000,000.00 is shared by both the building and the stocks in trade.

It has long been settled that a false and material statement made with an intent to deceive or defraud voids
an insurance policy.42 In Yu Cua v. South British Insurance Co.,43 the claim was fourteen times bigger than the
real loss; in Go Lu v. Yorkshire Insurance Co,44 eight times; and in Tuason v. North China Insurance Co.,45 six
times. In the present case, the claim is twenty five times the actual claim proved.

The most liberal human judgment cannot attribute such difference to mere innocent error in estimating or
counting but to a deliberate intent to demand from insurance companies payment for indemnity of goods not
existing at the time of the fire.46 This constitutes the so-called "fraudulent claim" which, by express agreement
between the insurers and the insured, is a ground for the exemption of insurers from civil liability.47

In its Reply, UMC admitted the discrepancies when it stated that "discrepancies in its statements were not
covered by the warranty such that any discrepancy in the declaration in other instruments or documents as to
matters that may have some relation to the insurance coverage voids the policy."48

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